US Brigadier General Mark Kimmitt said US forces dropped two 227kg (500-pound) bombs and fired rockets at the wall of the Abdul-Aziz al-Samarrai mosque in Falluja.

"My understanding is that we went after one set of insurgents that were hiding behind the outer wall of a mosque, not the mosque itself," he told CNN television from Baghdad.

The US Marine colonel said Sunni insurgents had been using the site to fire on US forces with small arms and rocket-propelled grenades.

"If they use the mosque as a military machine, then it's no longer a house of worship and we strike," said Lt Col Brennan Byrne.

But he later told the AFP news agency that despite reporting up to 40 insurgents killed, US forces did not find any bodies inside the mosque compound.

"When we hit that building I thought we had killed all the bad guys, but when we went in they didn't find any bad guys in the building," Col Byrne said.

He speculated that the insurgents had either escaped before the bomb attack, or that Iraqis had taken away the dead bodies in the 30-40 minutes before Marines entered the bombed area.

Residents said the office of a religious organisation was hit, but no significant damage was reported to the mosque itself.

The BBC's Pentagon correspondent Nick Childs says US officials accept that troops are now engaged in the most difficult type of fighting - the kind of urban warfare that never really materialised in the initial stages of the conflict.

Escalation

The US military on Monday launched an operation to "pacify" Falluja and Ramadi - both within the Sunni triangle that has until now been the centre of opposition to the occupation.

MEHDI ARMY

Named after Mehdi - the "promised one" in Islam

Created in summer of 2003 - the first Shia militia to organise on the ground

The aim is to flush out insurgents who killed four American contractors last week, dragging their burned and mutilated bodies through the streets.

But violence by the Shia Muslim Mehdi Army has opened a second front for US-led coalition troops.

The US military has vowed to "destroy" the militia group, set up last June by radical Shia cleric Moqtada Sadr.

Ukrainian troops have withdrawn from the coalition's local headquarters in the southern town of Kut, which is now under the control of the Mehdi Army.

The Mehdi Army - thought to have up to 10,000 members - also appears to control the holy city of Najaf, and the town of Kufa.

In other developments:

US President George W Bush, at his ranch in Texas, holds a video-conference call with top advisers. They are believed to include the top US administrator in Iraq, Paul Bremer, and the head of the US-led forces Gen John Abizaid. Mr Bush also speaks by telephone to British Prime Minister Tony Blair.

Moqtada Sadr issues a statement from Najaf calling for power in Iraq to be handed over to "honest men" and not to collaborators of the US-led occupation.

The Shia spiritual leader, Grand Ayatollah Ali al-Sistani, condemns the coalition's handling of the Shia uprising and appeals for calm on all sides and an end to violence.

A US soldier is killed as his vehicle is attacked with a rocket-propelled grenade outside a police station in Baghdad, the US military says.

Eight Iraqis are killed in clashes with US troops during a demonstration near the northern city of Kirkuk, police say.

A US military helicopter makes an emergency landing after it is hit by small arms fire near the central town Baquba, the US military says. The two US pilots were unharmed.

An aide to Mr Sadr is killed in clashes with coalition troops in the town of Karbala, where Polish-led troops are based.